Treasury Bills vs CDs: Yield, Taxes & Access Compared

These two products look similar from a distance — you hand over money for a set period and get it back with earnings attached. But the mechanics are different enough that the right choice shifts depending on your tax situation, how likely you are to need the money early, and where you already have accounts.

Treasury bills are short-term debt issued by the U.S. federal government. Terms run from four weeks to about a year. You buy them at a discount to face value and receive the full face value at maturity — the difference is your earnings. Because the U.S. government is the issuer, there is no credit risk in the traditional sense. T-bills are available directly through TreasuryDirect.gov or through a brokerage account at firms like Fidelity or Charles Schwab.

Certificates of deposit are time deposits issued by banks and credit unions. Terms typically run from three months to five years. The bank pays a fixed rate over the term and returns your principal at maturity. CDs at banks are insured by the FDIC up to $250,000 per depositor; CDs at credit unions are covered by the NCUA up to the same limit. You can open CDs directly with a bank or credit union, or buy brokered CDs through a brokerage platform where multiple banks list their offerings side by side.

Short-term T-bill yields move closely with the federal funds rate — they are set at auction, where supply, demand, and Fed policy interact to determine the price. CD rates are set by individual banks based on competition and their own deposit needs. Both tend to track the same general rate environment, which means they often land close to each other for comparable terms.

The gap between them is most visible at the extremes. In a high-rate environment, short-term T-bills and top-rate online bank CDs tend to be neck and neck. When rates are falling, longer-term CDs can lock in rates that T-bills can no longer match after you roll a maturing position into a new one. That rollover risk — the possibility that your next T-bill pays less than your last one — is a real structural difference.

Online banks and credit unions consistently post higher CD rates than large retail banks. Brokered CDs, available through platforms like Fidelity and Charles Schwab, let you compare offerings from multiple banks in one place — which makes finding a competitive rate more straightforward than calling individual institutions.

On gross yield alone, there is no consistent winner. The after-tax yield calculation, covered in the next section, is where T-bills often pull ahead for the right saver.

When rates are falling, longer-term CDs can lock in rates that T-bills can no longer match after you roll a maturing position into a new one.

At the federal level, T-bill interest and CD interest are treated identically: both are taxed as ordinary income in the year they are received. Neither gets capital gains treatment, and neither has a special rate. That part is a wash.

The difference shows up at the state and local level. By federal law, interest earned on U.S. government obligations — including T-bills — is exempt from state and local income taxes. CD interest has no such exemption; it is fully taxable at every level.

This distinction is small in states with no income tax. Florida, Texas, Nevada, Washington, and a handful of others do not tax personal income, so the T-bill exemption does nothing for savers there — gross yield is the only number that matters. For those savers, a top-rate CD is often the stronger choice on yield alone.

In high-tax states, the after-tax math shifts meaningfully. A T-bill and a CD with nearly identical gross yields will not have identical after-tax yields once you factor in state tax. The higher the state rate, the wider that gap gets. Savers in states with high income taxes should calculate after-tax yield — not just the rate printed on the product — before deciding.

Both T-bills and CDs report interest on Form 1099-INT. For T-bills, the state tax exemption is not automatic — it typically needs to be claimed on your state return by identifying the income as U.S. government interest.

Both products are designed to hold your money for a fixed period. But what happens when you need it back before that period ends is very different.

T-bills can be sold before maturity on the secondary market through a brokerage account. There is no early withdrawal penalty in the traditional sense — but there is market risk. If interest rates have risen since you bought the T-bill, the price you can sell it for may be lower than what you paid. The opposite is also true: if rates have fallen, the secondary market price may be above your purchase price. For short-term T-bills with weeks or a few months remaining, this price movement is typically small. Selling through Fidelity or Charles Schwab is straightforward. Selling directly through TreasuryDirect is slower and more involved.

Standard CDs from banks and credit unions typically charge an early withdrawal penalty — often somewhere between 60 and several months of interest depending on the institution and the term length. That penalty can eat meaningfully into earnings on a short-term CD. Some banks offer no-penalty CDs that let you withdraw early without a fee, though those accounts usually carry a lower rate in exchange for the flexibility. Brokered CDs can also be sold on the secondary market through the same brokerage platform, giving them an access profile closer to T-bills than to standard bank CDs.

One practical advantage of brokerage platforms is that they let you hold T-bills and brokered CDs in the same account, with side-by-side rate comparison, maturity tracking, and secondary market access all in one place. That removes a lot of friction from what would otherwise require separate accounts at TreasuryDirect and multiple banks.

Fidelity, founded in 1946 and headquartered in Boston, MA, offers new-issue T-bill auctions, a secondary T-bill market, and a brokered CD marketplace with offerings from multiple banks. Charles Schwab, founded in 1971 and headquartered in Westlake, TX, provides the same core capabilities. Both platforms have branches across much of the country — Fidelity in 38 states + DC and Schwab in 44 states + DC — along with full online and mobile access for customers who prefer to manage everything digitally.

One meaningful detail for larger savers: FDIC insurance on brokered CDs applies per bank, per depositor. Buying brokered CDs from several different banks through a single brokerage account can extend deposit insurance coverage beyond the standard $250,000 limit. T-bills carry no per-depositor cap — they are backed directly by the U.S. government regardless of the amount held.

For savers who want to automate, both platforms offer tools to reinvest maturing T-bills or CDs into new positions without manual action. That makes either a workable foundation for a rolling short-term cash strategy.